Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Calumet Specialty Products Partners LP (NASDAQ:CLMT)

Q2 2010 Earnings Call

August 4, 2010 01:00 pm ET

Executives

Jennifer Straumins - EVP

Bill Grube - President and CEO

Pat Murray - VP and CFO

Analysts

Darren Horowitz - Raymond James

Operator

Welcome to the second quarter 2010 Calumet Specialty Products earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) I would now turn the call over to Jennifer Straumins, Executive Vice President. Please proceed.

Jennifer Straumins

Thank you operator. Good afternoon and welcome to the Calumet Specialty Products Partners investors call to discuss our second quarter 2010 financial results. During this call, Calumet Specialty Products Partners will be referred to as the Partnership or Calumet. Also participating in this call will be Bill Grube, our President and CEO and Pat Murray, our CFO. Following the presentation, we will hold the line open for a question-and-answer session.

During the course of this call, we will make various forward-looking statements within the meaning of the Section 21A of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management, as well as assumptions made by them and in each case based on information currently available to them. Although our management believes that the expectations reflected in such forward-looking comments are reasonable. Neither the Partnership, its general partner nor our management, can provide any assurances that such expectations will prove to be correct.

Please refer to the Partnership’s press release that was issued this morning, as well as our latest filings with the Securities & Exchange Commission. For a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made on this call. We are very pleased with our results for the second quarter considering that our largest facility, our Shreveport refinery was down for an extended turnaround during the entire month of April. Since the completion of the turnaround, we had continued to focus on increased run rates and the higher demand for our specialty products, and to take advantage of higher fuel products margins during the summer months.

We elected not to proceed with our unsecured notes offering in July 2010 due market conditions. We view this offering as an opportunity and not a requirement to refinance our existing term loan facility with longer term unsecured notes. We intend to continue monitoring the debt market for the opportunity to complete a debt refinancing transaction under appropriate market conditions.

We are also continuing our fuels products and crude oil hedging programs. These programs continue to help protect us against rapid changes and pricing levels, for both fuel products and crude oil. And finally as announced on July 9th, 2010, the Partnership declared a quarterly cash distribution of $44.05 per unit for the quarter ended June 30th, 2010 on all outstanding units. The distribution we paid August 13th to unit holders of record as of the close of business on August 3rd, 2010.

I’ll now turn the call over to Pat Murray to review our financial results.

Pat Murray

Thanks Jennifer. Net loss for the second quarter of 2010 was $0.9 million, compared to a net loss of $26 million for the same period in 2009. Future results include non-cash, unrealized derivative losses of $8.0 million and $17.6 million for the quarters ended June 30th, 2010 and 2009 respectively. The partnership improved its quarter-over-quarter results by $25.1 million, due primarily to an increase of 31.3 million in gross profit, partially offset by increased realized derivative losses of $12.9 million.

We believe the non GAAP measures of EBITDA, adjusted EBITDA and distributable cash flow are important financial performance measures for the Partnership. EBITDA and adjusted EBITDA as defined by our credit agreements were $21.7 million and $27.8 million respectively for the second quarter of 2010 as compared to the negative $1.9 million and $26.6 million respectively for the same period in 2009.

The partnerships distributable cash flow for the second quarter of 2010 was $10.7 million as compared to $14.3 million for the same period last year. The increase in adjusted EBITDA quarter-over-quarter was primarily due to an increasing gross profit which was partially offset by an increase in realized losses on derivative instruments and an increase in cash outlays for prepaid and accrued expenses.

We encourage investors to review the section of the earnings press release found on our website entitled non-GAAP financial measures and the attached tables for discussion and definitions of EBITDA, adjusted EBITDA, and distributable cash flow of financial measures and reconciliation of these non-GAAP measures to the comparable GAAP measures.

Gross profit by segment for the second quarter of 2010 for specialty products and fuel products was $46.4 million and $3.2 million respectively, compared to $20.7 million and negative $2.4 million respectively for the same period in 2009. The increase of $25.7 million in specialty products segment gross profit was primarily due to an increase of 41.5% in the average selling price per barrel of specialty products, while the average cost of crude oil per barrel increased by only 32.3%. Also, our specialty products sales volumes increased 4.7%, due primarily to improvements in overall specialty products demand and the addition of sales volumes under our specialty product segment agreements with LyondellBasell, which we entered into during the fourth quarter of 2009.

Fuel product segment gross profit quarter-over-quarter was positively impacted by improving crack spreads, combined with a $2 million increase in derivative gains on our fuel products hedges. Partially offsetting this increase in gross profit per barrel was a 22.6% decrease in fuel products sales volume. Sales volume decrease for the segment was due primarily to the decrease in production rates at our Shreveport refinery in the second quarter due to the extended turnaround at the refinery during the entire month of April.

Selling, general and administrative expenses increased $1.4 million to $8.3 million in the three months ended June 30th, 2010, from $6.9 million in the same period in 2009. This increase is primarily due to lower bad debt expense in the second quarter of 2009, resulting from the recovery of $0.9 million from a fully reserved account receivable from that period, as well as increased incentive compensation cost of $0.4 million in the second quarter of this year as compared to the same period last year.

Transportation expense increased $3.9 million to $20 million in the three months ended June 30th, 2010, from $16.1 million in the same period last year. This increase is primarily due to increased sales volumes of lubricating oils, solvents and waxes. Interest expense decreased $1.2 million or 13.9% to $7.3 million in the quarter ended June 30th, 2010, from $8.5 million in the three months ended June 30th, 2009, primarily due to lower interest rates and lower balances being carried on our revolver and term loan during the three months ended June 30, 2010 as compared to the same period in 2009.

As of June 30th, 2010, total capitalization consisted of partners capital in the amount of $422.2 million, and outstanding debt of $408.8 million, comprised of borrowing of $369.3 million under the term loan facility with an unadvertised discount of $11.9 million on the term loan, borrowings of $49.1 million under the revolver and a long-term capital lease obligation of $2.3 million. The $63.2 million decrease in partners capital from December 31st, 2009 was primarily due to $32.8 million of distributions to our partners, net loss recorded a $14 million and an $18 million decrease in other comprehensive income due to a decrease in the fair market value of our derivative instruments, as well as the settlement of derivative instruments designated as cash flow hedges.

We finished the second quarter 2010 in compliance with all of the financial covenants pursuant to our credit agreement which are measured quarterly. While assurances can't be made regarding our future compliance with these covenants, we believe that we will continue to maintain compliance with all of the covenants in our credit agreements.

On June 30th, 2010, we had availability under our revolver of $112.5 million, based on a $228.5 million borrowing base, $66.9 million in outstanding standby letters of credit and outstanding borrowings of $49.1 million. We believe that we will have sufficient cash flow from operations and borrowing capacity to meet our financial commitments, minimum quarterly distributions to our unit holders, debt service obligations, contingencies and anticipated capital expenditures. Now, I'll turn the call over to Bill Grube.

Bill Grube

Thank you, Pat and Jennifer. This concludes our remarks. We will now be happy to answer any questions you may have. Operator, would you please confirm if there are any questions?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Darren Horowitz with Raymond James. Please proceed.

Darren Horowitz - Raymond James

Jennifer, a couple of questions from me. First, I'm trying to get my arms around the magnitude of specialty products demand and the sustainability of that demand through the third quarter. Could you give us a little insight there please?

Jennifer Straumins

Sure. Our demand has continued to strengthen each quarter and related to the third quarter of last year. And a number of our competitors are still on or will be on announced turnaround programs. So we anticipate our specialty products demand remaining very strong to the end of the year.

Darren Horowitz - Raymond James

Where is the Shreveport refinery running relative to its capacity now, and could you also give us an update on the capacity utilization levels of both Princeton and Cotton Valley please?

Jennifer Straumins

Sure. Shreveport is running around 45,000 barrel a day, 45,000 to 46,000 barrels a day of crude right now and maximum capacity there is 55,000. So it’s got a little room to go. We’ve just now come back online, a 100% recovered from the environmental incident that we had in February, we were operating under a variance and that equipment has been replaced at this point in time and anticipate run-rate to start increasing due to that. As far as Princeton and Cotton Valley, Cotton Valley is running at a 100% hydrotreated utilization and Princeton is running at about 85% to 90% of the hydrotreated utilization?

Darren Horowitz - Raymond James

And then, just a couple of housekeeping questions from me. Am I correct in assuming that the increase in your replacement maintenance CapEx this quarter was due to the costs associated with the Shreveport downtime?

Jennifer Straumins

Well, the downtime was due to the turnaround. So, there was a lot of turnaround expense in that number and it’s also timing, we said we’ll spend around $20 million to $25 million in maintenance and environmental CapEx, and we anticipate that number trimming through for the rest of the year. So it’s heavily weighted towards the first half of the year.

Darren Horowitz - Raymond James

Okay. Should we apply the same range for full year 2011 as well?

Jennifer Straumins

Yes.

Darren Horowitz - Raymond James

And then last question from me as it relates to the potential $415 million term loan. Can you give us some color as to what rate you were being offered relative to what you were hoping to achieve?

Jennifer Straumins

No I can't.

Operator

Our next question comes from the line of (inaudible). Please proceed.

Unidentified Analyst

I think it probably relates to what you just mentioned, but I’ll just ask it anyway to make sure. It looks like that the total long-term debt dipped from end of ’09 to end of Q1 and then kind of reapproached ending ’09 levels of roughly $400 million. Is that kind of decrease in and increase in borrowings outstanding tied to the downtime and to the CapEx?

Jennifer Straumins

Not particularly. It’s really tied more to increase working capital levels and increased borrowings on our revolver. Due to our agreement with LyondellBasell, we purchased some inventory from them during the second quarter and also running higher rates at our facilities. Throughout the second quarter, we increased inventories in working capital. So, that’s what’s driving the increase in debt.

Unidentified Analyst

And then at the end of the last quarter you kind of discussed the Gulf Coast 211 crack spread as kind of being in the $7 to $8 range during the first quarter, but then as of May, it had kind of bounced back to 15. Roughly, where is that now on kind of where has that been kind of since May?

Jennifer Straumins

Sure. It averaged at about $11.5 for the second quarter and it’s a little over $9 today.

Operator

(Operator Instructions) It appears that there are no additional questions at this time. I would now turn the call back to Jennifer Straumins for closing remarks.

Jennifer Straumins

Thank you. This concludes our earnings conference call covering our second quarter 2010 operating results. Thank you for your participation today, and please note that this teleconference will be available for replay. You give me instructions containing our press release. Have a great day everybody.

Operator

This concludes today's presentation. You may now disconnect. Great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Calumet Specialty Products Partners LP Q2 2010 Earnings Call Transcript
This Transcript
All Transcripts